Supercharging the 'S' in ESG

Consumers and employees increasingly have different expectations of the businesses that they buy from and work for, and shareholders and lenders are under pressure from regulators and the market to prove that they are acting responsibly and investing sustainably. Regulation, compliance and reputational risk are some of the key drivers that are causing organisations to move from discussion to action around social-related topics. These changes in consumer and employee needs, and emerging regulatory demands are emphasising the need for businesses to supercharge the ‘S’ in ESG.

The ‘S’ in ESG, or the social pillar, is a concept that is ever-changing and evolving across the regulatory and macro-economic environment.  Heightened focus on disclosure and transparency in reporting, driven by the regulators, is prompting our clients to reassess their social impact. At its heart is the people agenda and at KPMG, a large part of our ‘S’ client offering focuses across three distinct areas:

1. Inclusion, Diversity and Equity
2. Human Rights and Modern Slavery
3. Culture, Workforce and Skills for the Future

Let’s take a closer look at what each of these areas entail.

Inclusion, Diversity, and Equity (IDE) is key to ESG frameworks in businesses across all sectors as it demonstrates a commitment to your people and enables the unlocking of value and performance in your workforce.  Our approach to working with clients is equity focused, evidence-based, collaborative and structured. We support organisations to build an inclusive culture that harnesses their unique power through a number of different channels. This may involve identifying how a lack of psychological safety in your organisation is holding you back from being a truly inclusive workplace. It may involve helping to manage and track your progress towards achieving a diverse organisation through the gathering and measuring of effective key metrics and data points. It may also involve effectively identifying and eliminating inequities and barriers for colleagues in order to create an equitable organisation.

A compelling IDE strategy focused on tackling inequality can help our clients advance their social sustainability goals, drive long-term value creation and thereby achieve a reputational and competitive advantage.

The regulatory landscape is also a key driver in organisations’ growing need for IDE support, as there are a number of current and upcoming regulations that set a legal standard for organisations to abide by. Prevalent examples include the Prudential Regulatory Authority (PRA) and Financial Conduct Authority (FCA) consultations (2023) aimed to boost diversity and inclusion to support healthy work cultures, reduce groupthink and unlock talent. Another example includes the Corporate Sustainability Reporting Directive (2023), which introduces a requirement for in-scope companies to report on both environmental and social risks as well as the impact of their activities on people and the environment through a double materiality assessment. Examples of social topics to be assessed include diversity on boards, employee engagement and development, and labour practices and human rights. Whether regulation is the key driver for your organisation’s need for IDE assistance or not, KPMG is equipped to help you at any point along your IDE journey.

Human rights and modern slavery compliance is crucial to ensuring that your organisation’s value chain protects, respects and remedies human rights and upholds necessary standards and principles that are required under law. As governments and the private sector turn their attention towards net zero and achieving environmentally sustainable economies, these strategies must ensure they are also consistent with international human rights and labour standards. This involves acting in alliance with the principles of a just transition, in which the move to a more sustainable economy takes into account all stakeholders, including communities, workers and social groups.

In recent years, human rights and supply chain regulations have come into force across the globe, which variously mandate in-scope companies to identify, prevent and mitigate actual and potential human rights abuses in their operations and supply chain. With the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) on the horizon, more and more businesses will need to ensure they have robust management systems in place to manage these risks.

Working across industries, our teams support small to large businesses with differing levels of maturity to design or enhance human rights programmes. Our modular end-to-end approach is aligned to international best practice per the UN Guiding Principles on Business and Human Rights (UNGPs) and is customisable to each organisation, sector and relevant regulatory environment. From regulatory mapping and maturity assessments to designing policies and training, our teams support businesses to build robust and compliant human rights frameworks and to implement these into their operations, including through the provision of managed services for supply chain due diligence and integrating human rights risk assessment into holistic third-party risk management programmes.

Culture, workforce and skills for the future cover a range of interdependent considerations for our clients, and enable employees to develop responsible and sustainable strategies, operations, and business models. In order to ensure long-term sustainability, ESG encompasses many strategic initiatives, and employees play a key role. Our team can help embed ESG into your workforce through four key pillars: communications and engagement, learning, organisation design, and culture and behavioural change.

Communicating your ESG growth, development, milestones and actions will better equip you to meet your ESG goals. Our teams are equipped to support with getting the most out of your communications and engagement plans through appropriate content and delivery, both internally – such as through your ability to share your Net Zero ambitions - and externally – such as through supplier education on greenwashing. Our teams can also support you with your approach to your organisation design by ensuring that your workforce has the ESG skills and capability required to operationalise your ESG strategy, and that business functions have defined their responsibilities accordingly. Aspects that we take into consideration and that may impact the trajectory of these responsibilities include emerging regulation, your organisation’s own transition plans, your ability to invest in capabilities, and the adoption of technology solutions.

ESG learning is a critical tool to ensure that your workforce is upskilled on upcoming regulation, and the latest standards and frameworks that firms are required to abide by. We have extensive experience designing and developing learning that can be applied to real-life scenarios and tailored to the unique nature of your business. This may include learning around climate-related financial disclosure reporting, anti-greenwashing, ESG governance, and reporting and assurance. Finally, our teams are experts at behaviour and culture change management. To achieve long-term value for shareholders, operate a sustainable business model, and manage ESG-related risks, organisations will need to consider and change key leadership and employee behaviours that do not support these aims. Examples of these behaviours may include a lack of well-being support from managers, or low leadership investment in skills for the future. Our teams will effectively identify these current-state behaviours, define target behaviours in-line with your organisations’ ESG goals, and design, deliver and measure a clear path to get there. Equipping employees with the right tools, skills and knowledge drives the right behaviours and decision-making capabilities, which in turn allows for the effective delivery of ESG commitments and a sustainable future for your business.

For more information on our People Consulting offerings and how we can support you with supercharging the social pillar of your ESG framework, please visit our People consulting page and feel free to reach out to us.

Over the next few months, you can expect more blogs spotlighting key areas of ESG in People Consulting, including a focus on ESG Regulatory Change, and our point of view on how best to embed ESG in your culture and strategy.